You will be able to describe how global shocks reach Singapore-listed companies and the Singapore dollar.
When Thailand's currency broke in July 1997, Singapore had no banking crisis, no currency peg to defend and a budget in good shape. Its stock market fell heavily anyway, and its economy slowed sharply the following year. Marcus was a child then, but the pattern still applies to the STI ETF and bank shares in his portfolio. Singapore is small and open, and global shocks reach it through a few well-worn paths. If you hold Singapore assets, you should know what those paths are.
Singapore's economy depends on things that cross its borders. Trade in goods passes through one of the world's busiest container ports. Ships refuel here. Regional headquarters, trading firms and wealth managers base themselves here. Banks finance trade and lend across Southeast Asia. Manufacturing, from chips to pharmaceuticals, mostly exports.
That makes the economy sensitive to three things outside its control: global trade volumes, regional growth and global financial conditions. Lesson 4.4, Tariffs and trade disputes: first and second-order effects, showed how trade disputes between other countries reach it. The Ministry of Trade and Industry's quarterly economic reports break growth down by sector, so you can see which parts are moving.
The STI is weighted by market value, and Singapore's three big local banks have long been among its largest constituents. Check the latest STI factsheet from FTSE Russell for the current weights. So when you buy an STI ETF, a large part of your money goes into regional banking, and Marcus's separate bank holding adds to that, as his correlation matrix in lesson 2.4 showed.
Banks here earn much of their income from net interest margin: the gap between what they earn on loans and what they pay on deposits. Because Singapore rates follow US rates, as How the economy hits your wallet: rates, inflation and cycles explains in lesson 2.1, Why Singapore interest rates follow the US Fed, the banks' margins rose as US rates climbed in 2022 and 2023, and they face pressure when rates fall.
The other driver is the credit cycle. The banks lend across Singapore, Greater China and Southeast Asia, to companies, property developers and households. When regional growth slows, more borrowers struggle, and banks set aside more money for bad loans, which comes straight out of profit. The 2020 collapse of the oil trader Hin Leong, from lesson 4.2, Energy markets and OPEC+ decisions as a market input, was one case where losses appeared suddenly.
Singapore has a reputation for political stability, the rule of law, a strong currency and sound public finances. In periods of regional uncertainty, money from wealthy individuals and companies in the region tends to move here.
Those flows can support the Singapore dollar, bank deposits and the wealth management business, and they add to demand for property. The government has repeatedly introduced cooling measures, such as higher stamp duties for some buyers, partly to stop that demand from pushing prices too far. For an investor, this channel works in the opposite direction from the others: some regional shocks bring money into Singapore rather than taking it out.
The pattern from 1997 has repeated. During the 2008 global financial crisis, Singapore's economy went into recession though its own banks were not the source of the problem. In 2003 the SARS outbreak hit travel, retail and confidence across the region, and Singapore with it.
A shock that slows regional growth reduces trade through the port, loan growth at the banks, earnings at regional consumer companies and rental demand at some S-REITs. Local shares can fall even when nothing has gone wrong in Singapore itself. Foreign investors who want to cut exposure to Asia also tend to sell the most liquid markets first, and Singapore's large companies are among the easiest in the region to sell.
So for Marcus, his Singapore holdings aren't a hedge against regional trouble. His STI ETF, bank shares and S-REIT are, if anything, a concentrated bet on regional growth and interest rates. His world ETF and US holdings, plus the Singapore dollar's tendency to hold up against regional currencies, are what offset that.
The companies themselves tell you which of these channels matter to them. A bank's annual report shows loans by geography and industry, and its risk management section describes exposures it considers material. A port or logistics company's report shows volumes by trade lane. An S-REIT's report shows where its tenants come from.
For the activity, open the latest annual reports of the three largest STI constituents, find the regional and global risks each names, and map them against the channels in this lesson.
Map the three largest STI constituents to the regional and global risks named in their latest annual reports.
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